“Is a Tenant entitled to a refund of the rents that it paid in advance to the Landlord if it exercises its right to terminate the Lease during a rental period?"
The answer, I’m afraid, is “no”. That is unless there is an express provision in the Lease which entitles the Tenant to a refund. This is something that should always be negotiated into the Lease by the Tenant or its solicitor as the Landlord’s solicitor won’t, as a matter of course, include this wording in the Lease.
The headline “M&S loses landmark property case in Supreme Court” last year sparked renewed interest in this question.
The court unanimously decided in that case to dismiss Marks & Spencer’s challenge to an appeal court judgment which meant that it was not entitled to a refund of £1.1m in rent for the period of the contract after it left the property. Ouch!
Mr Justice Morgan, sitting in the High Court, ruled that a term should be implied into the Lease to allow M&S to recover the money. He found that such a term was necessary to give business efficacy to the Lease.
Lady Justice Arden, giving judgment on behalf of the appeal court, disagreed. In her view, the Lease would not reasonably be understood to include such an implied term.
The Supreme Court agreed stating that it would be wrong to attribute to a Landlord and Tenant an intention that the Tenant should receive back an apportioned part of the rent that was payable and which was paid in advance.
If you have a break clause in your Lease or if you are about to enter into a Lease with the benefit of a break clause, this should be reviewed to ensure that there is an express provision for a refund and that the break clause is not drafted in a way that could preclude you from successfully terminating the Lease.
For more information, please contact Shilpa Unarkat on 0121 746 3300 / s.unarkat@sydneymitchell.co.uk
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